Critically evaluate: \"In comparing the two equilibrium positions in the diagram

Question

Critically evaluate: "In comparing the two equilibrium positions in the diagram below, I note that a larger amount is actually demanded at a higher price. This refutes the law of demand".

1. An increase in demand from D1 to D2 causes the price to fall/rise.

2. This change in price results in decrease/increase in quantity demanded along the D2 demand curve.

3. This change in price results in adecrease/increase inquantity supplied.

4. The new equilibrium has a lower price/higher price and a lower quantity/higher quantity when compared to the original equilibrium.

5. Does this refute the law of demand? No/Yes

6. Why? Because there was a change in demand/Because the new equilibrium has a lower price and quantity

Explanation / Answer

Answer

1. An increase in demand from D1 to D2 causes the price to rise because there is rightward shift in demand curve due to factors other than price.

2. This change in price results in increase in quantity demanded along the D2 demand curve.

3. This change in price results in increase in quantity supplied because According to law of supply as price increases quantity supplied increases

4. The new equilibrium has a higher price and a lower higher quantity when compared to the original equilibrium.

5. Does this refute the law of demand? No

6. Why? Because there was a change in demand i.e. shift in demand. If there was no shift in demand and price increases quantity demanded decreases.

According To law of demand every other thing remaining constant if price increases quantity demanded decreases.

In this case Every other thing is not remaining constant., because we can see that there is shift in demand which occurs because of factors other than price.

Hence It does not Refute the law of demand

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